Income Tax & Social Security in Kenya
The Tax Year in Kenya runs from 1st January to 31st December.
The key legislative authorities in Kenya are –
- Kenya Revenue Authority (KRA)
- National Social Security Fund (NSSF)
- National Hospital Insurance Fund (NHIF)
Payroll providers do not need to be licenced to make any Tax or Social Security fillings on behalf of their client in Kenya.
All tax returns should be completed by 30th June.
Income Tax in Kenya
Income tax is charged on the income earned by anyone resident in Kenya. A resident is an individual who has permanent residence in Kenya and has spent any part of the working year in the country or has spent 183+ days working in the country. A foreign employee in a non-Kenyan firm who is resident in Kenya is subject to tax on all emoluments.
Income tax is a direct tax charged on incomes of individuals from: –
- Employment
- Self-employment
- Profits from business entities
- Income taxes such as rent incomes, dividends, interests, pensions, royalties, income from management or professional fees
The method of collecting tax at source from individuals in formal employment is called Pay As You Earn (PAYE). The employer deducts a certain amount of tax from the employee’s salary or wages on each payday then remits the deductions to the KRA.
The four main taxes include:
- Customs and Excise
- Income Tax
- Value Added Tax (VAT)
- Motor Vehicle Road Licenses and Driving Licenses
Income tax is taxable to Individuals and Limited Companies (including Trusts). The income of a partnership is charged on the partners who share the income. Apart from collecting Taxes directly, the Commissioner may employ agents to collect taxes on his behalf and remit that tax (and account for) to him.
Social Security in Kenya
The National Social Security Fund (NSSF) is a statutory savings scheme to provide for retirement. Both employers and employee’s contribute 5% (up to KSH 200) per month.
An individual earning more than KSH 1,000 per month must make a monthly contribution to the National Hospital Insurance Fund which will entitles them to a reduction in certain hospital charges. The calculation will be based on the salary with a minimum contribution of KSH 30 and a maximum of KSH 320. Kenya is a member of the International Social Security Association.
Monthly contributions should be made to the authorities for Social Security payment by the 15th of the following Month.
Reporting Tax in Kenya
The Kenyan tax year follows the calendar, from the 1st January to the 31st December., Annual tax returns must be completed by the 30th June, and reported to the Kenya Revenue Authority (KRA). Other reporting bodies include the National Social Security Fund (NSSF), the National Hospital Insurance Fund (NHIF), and the Directorate of Industrial Training (NITA).
Monthly tax contributions by employers must be made to the KRA by the 9th of the following month – and all reports should be printed and generated by the payroll processor. Reports should be verified and stamped by the processor client before submission to the KRA.
New Employees in Kenya
New starts have to be registered with Local Authorities only if they do not have an existing Personal Identification Number (PIN), National Social Security Fund (NSSF) and National Hospital Insurance Fund (NHIF) numbers. They must be registered prior to the payroll run being completed.
For setting up a New Starts the details required include:
- Full Name
- Bank Details
- PIN
- NSSF
- NHIF
This process should also be followed for any expats.
There is no set timeline for this to happen.
Leavers In Kenya
Employers cannot unfairly terminate the employment of an employee. Employers must prove justified reasons for the termination of an employee’s employment. The termination must be investigated and an appeal heard before resorting to termination. If the employer fails to adhere to this then it will be considered unfair.
Payroll in Kenya
Employers in Kenya must withhold income tax and social security contributions from their employees’ salaries as part of the payroll process. Income tax and social security contributions are collected via the PAYE system, and then submitted to the KRA on a monthly basis.
Income tax rates in Kenya vary by residency status: non-residents pay tax only on income earned within Kenya, while residents pay on income earned worldwide. Kenya’s income tax rate levels are as follows:
KES 0 – 13,4160 10%
KES 13,4160 to 26,0568 15%
KES 22,60568 to 38,6976 20%
KES 38,6976 to 51,3372 25%
KES 51,3372 upwards 30%
Employers may provide online payslips to their employees, and must keep payroll reports for 7 – 10 years (depending on type).